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Exam 18: Evaluating Investment Performance

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Question 21

Multiple Choice

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Risk-adjusted mutual fund performance measures have decreased in popularity because

A) in nearly efficient markets, it is extremely difficult for portfolio managers to outperform the market.
B) the measures usually result in negative performance results for the portfolio managers.
C) the high rates of return earned by the mutual funds have made the measures useless.
D) in nearly efficient markets, it is extremely difficult for portfolio managers to outperform the market, and the measures usually result in negative performance results for the portfolio managers.
E) None of the options are correct.

F) B) and D)
G) B) and C)

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Question 22

Multiple Choice

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Suppose the risk-free return is 6%. The beta of a managed portfolio is 1.5, the alpha is 3%, and the average return is 18%. Based on Jensen's measure of portfolio performance, you would calculate the return on the market portfolio as

A) 12%.
B) 14%.
C) 15%.
D) 16%.

E) None of the above
F) A) and D)

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Question 23

Multiple Choice

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The following data are available relating to the performance of Seminole Fund and the market portfolio: The risk-free return during the sample period was 6%. If you wanted to evaluate the Seminole Fund using the M2 measure, what percent of the adjusted portfolio would need to be invested in T-Bills?

The following data are available relating to the performance of Monarch Stock Fund and the market portfolio: The risk-free return during the sample period was 4%. Calculate Jensen's measure of performance for Monarch Stock Fund.

The following data are available relating to the performance of Wildcat Fund and the market portfolio: The risk-free return during the sample period was 7%. Calculate Sharpe's measure of performance for Wildcat Fund.

The following data are available relating to the performance of Long Horn Stock Fund and the market portfolio: The risk-free return during the sample period was 6%. What is the Sharpe measure of performance evaluation for Long Horn Stock Fund?

The comparison universe is not

You want to evaluate three mutual funds using the Sharpe measure for performance evaluation. The risk-free return during the sample period is 4%. The average returns, standard deviations, and betas for the three funds are given below, as are the data for the S&P 500 Index. The fund with the highest Sharpe measure is

The following data are available relating to the performance of Wildcat Fund and the market portfolio: The risk-free return during the sample period was 7%. Calculate Jensen's measure of performance for Wildcat Fund.

In a particular year, Aggie Mutual Fund earned a return of 15% by making the following investments in the following asset classes: The return on a bogey portfolio was 10%, calculated as follows: The contribution of selection within markets to total excess return was

The Value Line Index is an equally-weighted geometric average of the returns of about 1,700 firms. The value of an index based on the geometric average returns of three stocks where the returns on the three stocks during a given period were 32%, 5%, and -10%, respectively, is

________ developed a popular method for risk-adjusted performance evaluation of mutual funds.

Suppose you purchase one share of the stock of Cereal Correlation Company at the beginning of year 1 for $50. At the end of year 1, you receive a $1 dividend and buy one more share for $72. At the end of year 2, you receive total dividends of $2 (i.e., $1 for each share) and sell the shares for $67.20 each. The time-weighted return on your investment is

If an investor has a portfolio that has constant proportions in T-bills and the market portfolio, the portfolio's characteristic line will plot as a line with ________. If the investor can time bull markets, the characteristic line will plot as a line with ________.

The M2 measure was developed by

In a particular year, Razorback Mutual Fund earned a return of 1% by making the following investments in asset classes: The return on a bogey portfolio was 2%, calculated from the following information. The contribution of selection within markets to the Razorback Fund's total excess return was

Suppose two portfolios have the same average return and the same standard deviation of returns, but portfolio A has a higher beta than portfolio B. According to the Sharpe measure, the performance of portfolio A

The ________ measures the reward to volatility trade-off by dividing the average portfolio excess return by the standard deviation of returns.

In a particular year, Razorback Mutual Fund earned a return of 1% by making the following investments in asset classes: The return on a bogey portfolio was 2%, calculated from the following information. The contribution of asset allocation across markets to the Razorback Fund's total excess return was

Suppose two portfolios have the same average return and the same standard deviation of returns, but Buckeye Fund has a higher beta than Husker Fund. According to the Sharpe measure, the performance of Buckeye Fund